Supply Demand Analysis of Oil Palm Commodity in West Sumatera Province

Abstract

Oil palm as a leading commodity in the plantation sector in West Sumatra Province has contributed the most to GRDP. This condition should be able to prosper the economy of the oil palm smallholders, however, it is not as expected. One of the reasons is that the quality of Fresh Fruit Bunches (FFB) produced by independent smallholders is not in accordance with the standards set by the oil palm processing factory. Moreover, it is due to an imbalance between the supply of FFB produced by independent smallholders towards the demand of FFB from oil palm processing factory. Consequently, FFB from independent smallholders is rejected by oil palm processing factory, or bought with a low price. This study aims to analyze the conditions of existing supply and demand of fresh fruit bunches in West Sumatra Province by examining the causative factors of FFB excess supply. Results showed that the characteristics of independent smallholders in West Sumatera Province were the cause of the low bargaining power of FFB they produced. The quality standards of FFB produced by independent smallholders had not met the quality standards of raw materials required by the palm oil processing factory. Thus, a big amount of FFB from independent smallholders were rejected by the factory, which resulted in excess supply of FFB of smallholders. A policy was proposed in the form of the concept of the establishment of Regional-Owned Enterprise, which can be expected to create an effective and efficient supply chain system. Keywords—excess supply; FFB; independent smallholders; Regional-Owned Enterprise